Oil price shocks and China’s consumer and entrepreneur sentiment: a Bayesian structural VAR approach

This paper studies the effect of oil price shocks on China’s consumer and entrepreneur sentiment using a novel Bayesian inference structural vector autoregression model. Interestingly, we find that oil supply and demand shocks that raise oil prices have significantly positive effects on both consumer and entrepreneur sentiment. These effects are more significant on entrepreneur sentiment than on consumer sentiment. Furthermore, oil price shocks promote consumer sentiment mainly by increasing their satisfaction with current income and their expectation of future employment. Oil price shocks would change consumers’ saving and consumption decisions but not their plans to buy cars. Meanwhile, the effect of oil price shocks on entrepreneur sentiment differs across different types of enterprises and industries.